Function of Financial Markets

An Economic Analysis of Financial Structure


8.1 Basic Facts About Financial Structure Throughout the World

1) American businesses get their external funds primarily from

A) bank loans.
B) bonds and commercial paper issues.
C) stock issues.
D) loans from nonbank financial intermediaries.

4) Of the following sources of external finance for American nonfinancial businesses, the least important is

A) loans from banks.
B) stocks.
C) bonds and commercial paper.
D) loans from other financial intermediaries.

10) Nonfinancial businesses in Germany, Japan, and Canada raise most of their funds

A) by issuing stock.
B) by issuing bonds.
C) from nonbank loans.
D) from bank loans.

12) Direct finance involves the sale to ________ of marketable securities such as stocks and bonds.

A) households
B) insurance companies
C) pension funds
D) financial intermediaries

14) One purpose of regulation of financial markets is to

A) limit the profits of financial institutions.
B) increase competition among financial institutions.
C) promote the provision of information to shareholders, depositors and the public.
D) guarantee that the maximum rates of interest are paid on deposits.

15) Property that is pledged to the lender in the event that a borrower cannot make his or her debt payment is called

A) collateral.
B) points.
C) interest.
D) good faith money.

16) Collateralized debt is also know as

A) unsecured debt.
B) secured debt.
C) unrestricted debt.
D) promissory debt.

17) Credit card debt is

A) secured debt.
B) unsecured debt.
C) restricted debt.
D) unrestricted debt.

21) A ________ is a provision that restricts or specifies certain activities that a borrower can engage in.

A) residual claimant
B) risk hedge
C) restrictive barrier
D) restrictive covenant

24) Which of the following is NOT one of the eight basic puzzles about financial structure?

A) Debt contracts are typically extremely complicated legal documents that place substantial restrictions on the behavior of the borrower.
B) Indirect finance, which involves the activities of financial intermediaries, is many times more important than direct finance, in which businesses raise funds directly from lenders in financial markets.
C) Collateral is a prevalent feature of debt contracts for both households and business.
D) There is very little regulation of the financial system.